School board insurance trust comes under fire

BOB BECK (Host): Earlier this year, Wyoming Public Radio obtained internal documents on the Wyoming School Board Association Insurance Trust, which showed the trust – otherwise known as WSBAIT – was in bad financial shape. WSBAIT provides insurance plans for more than 4,000 public school teachers and staff across the state... and Wyoming Public Radio’s Tristan Ahtone joins us with an update on where the trust stands now.

TRISTAN AHTONE: Thanks Bob. So just to bring you up to speed, in April we looked into the finances of WSBAIT and concluded that the trust was running about a 3.4 million dollar deficit and may have been struggling to pay claims. That means when any of the people insured through the trust went into see a doctor, unbeknownst to them their coverage was shaky because there was a chance that WSBAIT would not have enough money to pay their claims. In other words those 4,000-plus teachers and staff could have been on the hook for their medical expenses IF the trust didn’t pay the bills.

BECK: Now, we learned about this through a financial review which was authored by a company called Leif and Associates, correct?

AHTONE: That’s correct. It was a draft report that was originally released on March 3rd of 2010, warning of potential financial problems at WSBAIT and made recommendations: mainly that the Trust would have to increase premiums and fees somewhere in the range of 40 to 80-percent if WSBAIT was going to remain financially solvent.

BECK: So you got a copy of the draft report, but nobody else did?

AHTONE: Well, that’s where it starts to get a little murky. At the time of our original report we spoke with Amy Carlson, a former Regional Vice President of Summit Reinsurance – which is basically WSBAIT’s back-up insurer in case there are especially big insurance claims. On March 10th of 2010, WSBAIT held a meeting with their board of trustees in Casper. Liz Leif of Leif and Associates was scheduled to present the report, but according to Carlson, that never happened.

Carlson: Well the head of the trust stood up and told the board members that the report was not available, that he did not have it. And I sat there with a copy of the report in my hand. And the trustees expected a report from Liz. They had authorized tens of thousands of dollars for these reports to be done, and you can see on the original agenda she was slated to speak and then what I was told was that they uninvited her from that meeting after reading the report.

AHTONE: Now, at the time of our report, nobody from WSBAIT would go on the record with us. However, earlier this week, the director of Insurance Services for the Wyoming School Board Association, Terry Sterling, did take my call, and I asked him why the report wasn’t shared with board members at the meeting.

Sterling: When we commissioned her for the report, and she drafted what she drafted, she didn’t have all the pieces of the puzzle so to speak, so she made some conclusions, she made some suggestions based on incomplete data. And that’s not meant as any type of critique of Liz and her folks, they do a wonderful job, it’s just that at that time when she wrote that report she didn’t have all the information.

BECK: So what information did she not have?

AHTONE: Well, according to Sterling, Liz didn’t understand that WSBAIT is not responsible for something called IBNR… otherwise known as Incurred But Not Reported. So IBNR claims come in when a school district wants to leave the trust – if they terminate their contract on, say, July 1st… there are still claims that may have come in during the late part of June. So due to natural turnaround time they come in a little later, hence the term incurred but not reported. Well under WSBAIT, districts are responsible for those claims, not the trust.

BECK: So then if Liz Leif didn’t have that information, she made recommendations based on the assumption that WSBAIT was responsible for those claims.

AHTONE: Exactly. According to Sterling, Leif also proposed setting a rate standard where rates would be the same across the state regardless of where you lived.

BECK: So they killed Liz Leif’s report, because she didn’t have that one piece of information AND because they didn’t like her proposals?

AHTONE: As far as I understand yes. Why that information about I-B-N-R never made it to her is beyond me, and Sterling wouldn’t tell me why that information never made it to her despite paying for the report. When I asked him that exact question, here’s what he said.

Sterling: It was just at the time we asked her to take a look at some things and just from a clean slate and just to give us her ideas, her thoughts on some improvements within our program.

AHTONE: So there’s your answer. The Leif Report was never finalized nor shared because she lacked information, and that information was never given to her because they just wanted some ideas.

BECK: Then why is the report such a big deal?

AHTONE: Well mainly it shows that there was a huge deficit due to one main factor: the Trust didn’t increase premiums at a sufficient rate - which means that while health insurance costs went up, WSBAIT kept premiums low. Now, what makes this a big deal is that Summit Reinsurance, WSBAIT’s back-up insurance, ran up numbers of their own in October of 2010. They didn’t have recommendations like the Leif Report did, but the analysis on WSBAIT’s finances were nearly identical. You can tell this because when you compare loss ratios across both reports, they come out the same: The Trust was running a massive deficit.

BECK: And as we know since then, WSBAIT ignored the reports, came up with a rate increase of around 13-percent average for all school districts in 2010 when they re-signed with the trust, and then had to return in January of this year to ask for a mid-year increase because they were running a deficit.

AHTONE: That’s about where we stand now. So one of the big things that’s been bothering me since we did our report was whether or not we got everything correct. Insurance is complicated stuff, and with WSBAIT refusing to go on the record with us to complete the story, I felt we had holes that needed to be filled in. Luckily, that doesn’t seem to be the case anymore. Here’s the tape:

(Phone tape)

AHTONE: So in terms of our reporting over here, what did we get wrong?

STERLING: [long pause] You know I think, unfortunately, there were some conclusions that were arrived at… you know, your story was based very heavily on this Leif Report, which admittedly at first blush, if you read that report at just face value not knowing the background behind it, not knowing why it was commissioned and that Liz didn’t have all the pieces of the puzzle, yeah, it didn’t look very good. But that wasn’t the full picture. It was a draft report that was never really meant to be distributed.

AHTONE: So as you can see, they’re not really disputing what we reported; they just don’t seem to like it…

BECK: So where do we stand now? Now that WSBAIT has done a mid-year rate increase, is it on solid financial footing again?

AHTONE: Sterling says yes, although when I asked for WSBAIT’s most recent finances for our analysis, he wouldn’t commit. So really, until we get the numbers from him, or somebody else, we can’t really make an analysis. According to the State Insurance Department there have been no complaints from any of the school districts and claims are being paid. So with no noise from the school districts and no more numbers to look at, I guess we don’t know how they’re doing. However, by all accounts, they were doing just fine in 2010 when this deficit was growing, and I’m not sure any of us would have been the wiser without seeing these reports and numbers, but for now we’ll have to take Mr. Sterling at his word.

BECK: My last question, you mention the State Insurance Department: are they still involved with this in any way?

AHTONE: Well, this week the Department introduced a draft bill to the joint Labor, Health and Social Services committee aimed at providing officials more authority over health insurance trusts and plans. The proposed bill would provide the state’s insurance commissioner the authority to require fiscal improvements within organizations like WSBAIT – so when they see a trusts finances, or the things we saw going on with WSBAIT last year, they could - in theory - step in and say ‘you need to fix this. Now.’ The bill will go to the full legislature in February.